The objective of this study is to investigate the impact of budget deficit on macroeconomic instability and economic growth in the developing Asian region over the period 1973–2022. In the first-stage regression analysis, standard panel estimation techniques were used; in the second stage, the study employed mean group and pooled mean group estimation methods, as the slope heterogeneity test rejected the null hypothesis of homogeneous slope coefficients. The results show a positive impact of budget deficit on macroeconomic instability; this implies that, in the long run, an increase in budget deficit contributes to greater macroeconomic instability due to inflationary pressure, higher interest rates, and exchange rate volatility. Furthermore, the results show a negative impact of the budget deficit on economic growth in the long run, as a growing budget deficit may signal some fiscal challenges, such as increased government borrowing and reduced private sector investment, that ultimately hinder economic growth. The current study contributes to the existing empirical literature and offers important guidelines for policymakers seeking to better understand the dynamics of the budget deficit within the context of developing countries.
Citation: Umaima Arif, Malaika Komal, Asma Arif. The dynamics of budget deficit, macroeconomic instability and economic growth in developing Asian countries: Evidence from heterogeneous panel methods[J]. National Accounting Review, 2026, 8(2): 233-254. doi: 10.3934/NAR.2026011
The objective of this study is to investigate the impact of budget deficit on macroeconomic instability and economic growth in the developing Asian region over the period 1973–2022. In the first-stage regression analysis, standard panel estimation techniques were used; in the second stage, the study employed mean group and pooled mean group estimation methods, as the slope heterogeneity test rejected the null hypothesis of homogeneous slope coefficients. The results show a positive impact of budget deficit on macroeconomic instability; this implies that, in the long run, an increase in budget deficit contributes to greater macroeconomic instability due to inflationary pressure, higher interest rates, and exchange rate volatility. Furthermore, the results show a negative impact of the budget deficit on economic growth in the long run, as a growing budget deficit may signal some fiscal challenges, such as increased government borrowing and reduced private sector investment, that ultimately hinder economic growth. The current study contributes to the existing empirical literature and offers important guidelines for policymakers seeking to better understand the dynamics of the budget deficit within the context of developing countries.
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Umaima Arif, Malaika Komal, Asma Arif. The dynamics of budget deficit, macroeconomic instability and economic growth in developing Asian countries: Evidence from heterogeneous panel methods[J]. National Accounting Review, 2026, 8(2): 233-254. doi: 10.3934/NAR.2026011
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